Monday, August 07, 2006

The Best Psychological Test of All

In my last post, I suggested that we may lose discipline in trading for the right reasons, not wrong ones. We naturally gravitate toward the intersection of our values, our abilities, and our skills: those arenas in which we can do good and do well. If we find ourselves veering from what we tell ourselves we *should* be doing, the answer may not be to "discipline" ourselves to our original path. Rather, it makes sense to view the loss of discipline as information and identify what it might be that we're moving *toward*.

But how can we know if we're truly operating in our ideal niches, whether in trading, romance, or careers? It turns out that there is a very simple psychological test that can provide this information.

Keep a journal of your emotional experience: how you are feeling at the end of your mornings, afternoons, and evenings. Make particular note of the number of occasions in which you were totally absorbed in what you were doing--so much so that you lost your sense of time passing and lost your awareness of yourself. Also make note of occasions in which you felt frustrated for any reason.

The result of your psychological test is simply the ratio of occasions in which you are absorbed to occasions in which you are frustrated. It turns out that highly creative, productive, and successful individuals have an unusually high ratio.

The reason for this is that these successful people are operating at that nexus of interests, talents, and skills. Because they're doing what they love and have the resources to do it well, they become wholly absorbed in their experience. This is the "flow" state described by Mihalyi Csikszentmihalyi: a pleasurable, altered state of consciousness, in which we feel at one with our situation.

During frustration, on the other hand, we are either doing something that doesn't interest us or something for which our skills and talents are poorly matched for the demands of the task. If task demands are too easy, we become frustrated with boredom. If task demands are excessive, we become frustrated by our inadequacies. Frustration divides subject and object; in flow, those are joined. It's the difference between a highly satisfying sexual experience and a highly unsatisfying one.

If you're operating in your proper niche, you will be experiencing a state of flow on a regular basis. You will be doing what you do well, and you will love and value what you're doing. That is true for the job you're in, the marriage you're in, and the trades you're in. That psychological test applies to most of life's arenas.

Too often, we justify frustration today by the vague hope of fulfillment tomorrow. In my book, I mentioned the Kansas bar near my home where a neon sign promised "Free Beer Tomorrow". Of course, naive patrons who returned the next day were always told that the free beer was, indeed, tomorrow.

In the end, life is a succession of situations: careers you're in, people you know, relationships you enter, markets you trade. You are your situation: you always experience the fit--or lack of fit--between who you are and what you're doing. Successful people find good fits in life: their situations bring flow. Taking your emotional temperature at the end of trading days--assessing your periods of flow and frustration--will tell you a great deal as to whether or not you're in the right markets, with the right methods, in the right timeframes, with the right skills.

4 comments:

This is brilliant! I've thought along these lines most of my life and have often made changes that seemed rash or impulsive from the outside but made perfect sense to me on the inside. I have a good friend who is struggling to find these characteristics in her professional life and last night I quoted your blog to her in an email. Then I looked today and your blog follows through. You really laid it out in a simple and elegant manner and I am looking forward to getting my friend to try the test. She is a very talented woman and is too often frustrated. Thank you for your wisdom!

Although I do not trade mechanically, I do find it helpful to have hard and fast trading rules to guide my decisions. My experience, FWIW, is that these rules limit the number of trades that I take, but increase the % winners. One rule, for example, is to stop trading when the average 5 min ES volume falls below a threshold level, as this suggests that there will not be sufficient volatility to create a good risk/reward balance.

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).